Russia Looks Profoundly Weak – Roger Altman

Ukraine cease-fire deal helping world markets

U.S. stock futures were higher in early trading, following gains in European shares on news of a ceasefire between Russia and Ukraine starting Sunday. Meanwhile, oil prices were sharply higher this morning.

READ: 7 Ways to Play Oil & Gold

Most investors today keep the vast majority of their capital in stocks and bonds, which is fine. But truly wise ones also diversify into alternative investments, which simply means not stocks, bonds, or cash. Gold has always been the leading alternative asset, largely thanks to its strong negative correlation with the stock markets. Gold thrives when stocks are weak, making it indispensable to managing overall portfolio risk.

American stock investors’ preferred vehicle for diversifying into gold is the flagship SPDR Gold Trust ETF (NYSEARCA:GLD). This is the world’s largest gold ETF by far, and offers some great advantages to stock traders. They can instantly buy or sell GLD shares, gaining or shedding gold exposure, with normal stock-trading accounts. And this is very efficient, with very low transaction costs.

READ: Stock Traders Flock Back to Gold

GLD’s mission is to track the gold price, which it has done flawlessly since its birth in November 2004. Investors and speculators owning GLD shares get gold-price exposure that’s virtually identical to gold’s underlying price moves. Achieving this mirroring isn’t trivial for GLD’s custodians, because the real-time supply and demand of GLD shares rarely matches gold’s own. That requires GLD to act as a conduit.

READ: Terry Sacka Discusses “BRICS Nations & the Impact on the U.S. Dollar Dominance

When stock traders buy GLD shares faster than gold itself is being bought, they threaten to decouple to the upside. That would cause GLD to fail its tracking mission. So its custodians quickly step into the markets to offset that excess demand. They issue enough new GLD shares to supply that differential demand, and then use the proceeds to buy physical gold bullion that is held in trust for shareholders.